LNG Shipping Market Lulled in Q1, Recovery on the Horizon

The first quarter of 2015 saw a material fall in demand and charter rates for LNG shipping, Golar LNG Limited said in a commercial review of LNG shipping and FRSU performance.

Average spot rates during the quarter were USD 40-45,000/day for TFDE vessels and USD 30-35,000/day for steam turbine vessels. Activity was extremely limited across the market, with some vessels remaining idle for almost the entire quarter, Golar said.

Spot charters which were concluded typically included ballast payments equivalent to fuel only. The most active charterer in the market during the early part of the year was RasGas, concluding a significant number of charters for “backhaul” voyages from Qatar to Europe. These were generally concluded with rates at a discount to perceived market levels.

According to the performace review, April and May have seen a slight increase in the number of spot charters, although rates have fallen to even lower levels as a significant number of vessels remain open prompt.

A number of term deals have been concluded in 2015 for firm periods between 4 and 12 months with options up to a further 2 years. Both Seper Tankers (ST) and Tri Fuel Diesel Electric (TFDE) vessels have been chartered for these requirements at rates in USD 20-30,000/day range.

“The East-West arbitrage in LNG prices has been close to zero for most of 2015 to date as demand has remained flat amongst Far East buyers. As a result, LNG volumes moving from the Atlantic to East of Suez dropped by more than 50% from those seen in the preceding quarter. Demand has however been stimulated as new LNG importers have entered the market from Egypt, Jordan and Pakistan,” the review said.

Golar posted a net profit of USD 24.6 million in Q1, driven predominantly by a provisional USD 100 million gain on sale of the Golar Eskimo which completed on January 20.  This offset a poor operating result and significant non-cash financial costs linked to mark to market valuation of interest rate and TRS swaps.

The company has commenced discussions with partners Keppel and Black & Veatch aimed at exercising an option, under an existing framework agreement, for the ordering of a third GoFLNG unit similar to the Hilli and the Gimi.

“Golar intends to pursue the third GoFLNG vessel on a similar contractual basis as the second vessel, preserving flexibility on design and delivery schedule, and including cancellation provisions. Although subject to business development uncertainty, further opportunities for deploying facilities similar to Hilli and Gimi are being pursued and work continues to mature these leads,” Golar added.

Speaking of the outlook, Golar predicts that it would take some time before the market fully recovers having in mind that there are up to 40 LNG Carriers currently idle.

Utilisation, underlying revenue net of voyage expenses and consequently operating results are expected to deteriorate further during 2Q however, Golar believes that the bottom of this challenging shipping market has been reached. 

“The first signs of an improved chartering environment, albeit from a very low base, are starting to become evident as new LNG production capacity is prepared for start-up and new markets for receiving LNG in Pakistan, Jordan and Egypt have started to receive their first cargoes,” the company said.

  Golar hopes to see this manifest itself in a gradual improvement to utilisation, net revenue and operating results from 3Q onwards.

In contrast to the market for LNG Carriers, the level of enquiry and interest for FSRU’s is the strongest it has been for some time. The company is therefore very optimistic that the FSRU Tundra will be contracted on terms that make it a suitable near-mid-term dropdown candidate to Golar Partners.